What may yet persuade the global anti-money laundering and terrorism Financial Action Task Force (FATF) to ease the supervisory conditions, and timespan, of greylisting are the arrests and court proceedings in at least 20 State Capture cases, and additional corruption matters. 

This would be the return on the hard work by prosecutors and specialist investigators in a fractured criminal justice system that was central to South Africa’s failure to meet international anti-money laundering and terrorism financing standards, according to the FATF’s October 2021 report.

But it will come down to how South Africa presents its case to the FATF, and also globally to its investment, trade and business partners, according to research commissioned by Business Leadership South Africa (BLSA) from consulting firm Intellidex.

“The qualitative nature of the effectiveness assessment provides a level of uncertainty on how the FATF will decide… The assessors need to consider context and progress, but ultimately need to be convinced by successful prosecutions and other enforcement actions related to money laundering and terrorist financing.” 

Communication – and determined, consistent political will – was central to Mauritius exiting greylisting after just 20 months. That not only included anti-money laundering and terrorism financing awareness outreach, but also a national effort led by the prime minister.

In South Africa, the Presidency should provide the leadership on this FATF process because “the most difficult challenges… are to build institutional capacity, processes and systems in key parts of the supervisory, investigation and prosecution services, as well as departments like Home Affairs and Social Development, requiring coordinated action across government”, according to the Intellidex report, “Sword of Damocles: South Africa’s FATF Greylisting”.

Yet although the Presidency has established a range of units, task teams and working groups on anything from cutting red tape to climate change, meeting FATF recommendations is not one of them.

“Given the role played by the interdepartmental committee and the minister of finance in guiding and leading this process, there is no need to appoint a person in the Presidency to coordinate the economic and security clusters,” said a recent parliamentary reply from President Cyril Ramaphosa to DA leader John Steenhuisen.

At Wednesday’s briefing on the BLSA-commissioned research, clear communication emerged central.

“We need to be convincing the world we are serious in taking us off the greylisting. That has to be a national project involving business and government,” Intellidex chairperson Stuart Theobald told the online briefing.

The impact of greylisting would be immediate on bilateral relations as additional due diligence is imposed. Relations with private portfolio managers would not be directly affected, but they might be because of additional checks that greylisting also required of banks.

High cost

In a benign scenario, greylisting would cost South Africa’s gross domestic product less than one percentage point over 18 to 24 months, based on quality communication, and demonstration of political will would limit the fallout of the additional due diligence and related costs.

The severe scenario based on perceived inaction by South Africa to meet FATF recommendations would mean a loss of up to three percentage points of GDP a year over three to five years, according to the research report.

It’s a cost that South Africa’s troubled political economy would struggle to carry.

Ahead of the 26 October Medium-Term Budget Policy Statement (MTBPS), clamour is rising for bailouts – government prefers the term “cash injection” – for state-owned entities (SOEs) like armaments manufacturer Denel, the SA Post Office and Eskom. But the government must deal with dire socioeconomic needs, including deepening hunger, worsening poverty and 44.1% joblessness on the expanded definition that includes those too disheartened to look for work.

Perhaps for this reason, the government has put much focus on two draft laws currently before Parliament, arguing this would tick off the majority of the 20 missed FATF recommendations.

But in Tuesday’s public hearings at the Standing Committee on Finance, deep-seated concern emerged over proposed mandatory registration of non-profit organisations (NPOs) amid an inadequate public comment period. Further consultations on the omnibus General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill are being scheduled.

Read in Daily Maverick: “After a massive outcry from civil society, Finance committee refuses to rubber-stamp greylisting bill” 

Progress is being made by Parliament’s police committee on the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill that brings into the law cybercrime and computers, as well as international conventions and standards. However, it has not yet been scheduled for a vote in the House, after which the draft law goes to the National Council of Provinces.

The legislative calendar remains unclear – as is whether the deadline of the end of 2022, or even the February 2023 FATF plenary meeting deadline, are attainable. Any rush, and lack of the constitutionally required meaningful public consultations, may mean the laws end up challenged in court.

But, South Africa’s key shortcomings remain lack of meaningful progress on key FATF immediate outcome recommendations for the criminal justice system, and regulatory supervisions, according to Intellidex.

This includes the dearth of about 3,000 Hawks investigative forensic and auditing specialists (whether money is available for recruitment remains in question) and extending supervision to non-financial service providers such as estate agents, lawyers and even Kruger Rand and crypto asset dealers.

Visit Daily Maverick’s home page for more news, analysis and investigations

While FATF has highlighted cross-border cash movements as a significant concern, the Financial Intelligence Centre (FIC) remains in discussion with National Treasury and the South African Revenue Service (Sars) on declaring cash at borders, and all cash EFTs of R5,000 and more.

The FATF October 2021 report outlines how OR Tambo International Airport was a key concern for cash cross-border movements, headed mainly to Hong Kong and Dubai. “A total of 40 cash seizures by the Sars over five years from 2014 to 2019 does not match South Africa’s risk profile for cash smuggling,” said that report.

Key measures

Mauritius’s case study in the BLSA-commissioned research shows a number of measures that would go a long way towards meeting FATF recommendations that require neither significant resources nor legislative amendments. 

Communications is a case in point, as is demonstrating South Africa’s determination, governance savvy and political will. Another would be risk assessments and plans to deal with risks that would demonstrate getting to grips with a central FATF concern about South Africa’s risk profile as a regional financial hub. Neither would require many rands and cents.

With an 85% chance of being greylisted, according to the Intellidex research, it would be a 24-month process to exit. Much would depend on successful convictions in State Capture and other prosecutions, and showing the will to make the necessary investments – even if over time – in the criminal justice system.

This included not only filling the vacant Hawks specialist forensic and auditing investigative posts, but also backing the Financial Intelligence Centre with additional staff and finances to fulfil anti-money-laundering and terrorism financing global standards.

Or, as BLSA CEO Busisiwe Mavuso put it at Wednesday’s briefing: “We need to work together for investigations and prosecutions to do better.” DM